Luxottica Group said an absence of sunny weather in its core European markets dragged down third quarter sales by its sunglasses brands, which include Oakley, Ray-Ban and Sunglass Hut.
The Italian eyewear and eye care giant reported total net sales rose by 5.5 percent compared to the prior period, reaching €1.9 billion. Adjusted net sales, which exclude a €23 million decline in revenue attributed to a change in the contractual terms of an insurance underwriting agreement that occurred in the third quarter of 2014, were up 6.8 percent. The Groups adjusted operating income rose to €296 million, up 16.1 percent compared to €255 million in the same period of 2013. In percentage terms, adjusted operating margin increased from 14.3 percent in the third quarter of 2013 to 15.5 percent in the third quarter of 2014.
The Groups adjusted net income for the third quarter of 2014 increased to €173 million, up 17.5 percent from €148 million in the same period of 2013, resulting in adjusted EPS of €0.36 (or US dollars 0.48, at an average €/US$ exchange rate of 1.3256).
In the third quarter of 2014, strict working capital management enabled Luxottica to generate €316 million in free cash flow, up from €295 million in the same period of 2013.
Net debt as of September 30, 2014 stood at €1,119 million (€1,461 million as of December 31, 2013), with a ratio of net debt to adjusted EBITDA of 0.7x (1.0x as of June 30, 2014).
Once again the Wholesale Division delivered strong sales growth and profitability further increased in the quarter, notwithstanding a sunless summer in Europe.
Net sales grew by 9.3 percent, at current and constant exchange rates, on a year-over-year basis, reaching €750 million.
The geographic areas primarily driving growth for the Wholesale Division in the third quarter were North America and emerging markets (mainly Brazil, China, India, and Eastern Europe), where sales increased 11 percent and 28 percent respectively. Net sales in Western Europe fell by 3 percent, compared to the 15 percent growth at constant exchange rates in the third quarter of 2013 and reflected unfavorable weather conditions during the summer. Net sales for the sun segment decreased in what is typically a key season for sun.
The optical segment delivered solid results, but its performance did not offset the negative impact from the sun segment. Brand portfolio highlights include continued global success at Ray-Ban and Oakley and the overall solid performance of our licensed brands.
The Wholesale Divisions operating income amounted to €159 million during the third quarter of 2014, marking an increase of 19.1 percent from €134 million in the third quarter of 2013. In percentage terms, operating margin increased to 21.2 percent from 19.5 percent in the third quarter of 2013.
In the Retail Division the solid growth in net sales at constant exchange rates continued, whereas at current exchange rates the negative performance of the first half of the year reversed. Overall, net sales for the Retail Division grew by 3.1 percent, at current exchange rates, reaching €1,133 million. On an adjusted basis, net sales increased by 5.2 percent at current exchange rates and by 5.0 percent at constant exchange rates.
The third quarter of 2014 saw positive comparable store sales in the optical segment. LensCrafters results were particularly noteworthy, with comparable store sales growing by 2.5 percent in North America in contrast to a 0.6 percent drop in the first six months of the year and by approximately 10 percent in China (+20 percent in total net sales at constant exchange rates2 also as a result of new store openings in the period). The optical specialty chains in Australia and New Zealand reported a slightly decreased performance in comparable store sales4, as a consequence of a more competitive and promotional environment.
Sunglass Hut, the Groups sun specialty chain, continued to contribute significantly, reporting a 7.4 percent increase in comparable store sales in the third quarter of 2014 on a global basis, after growing by 8.3 percent in the first half of the year. Contributions came from all geographic areas in which Sunglass Hut is located, including Australia and New Zealand.
The Retail Divisions operating income amounted to € 181 million during the third quarter of 2014, marking an increase of 9.6 percent from €165 million in the third quarter of 2013. In percentage terms, operating margin increased to 16.0 percent from 15.0 percent in the third quarter of 2013.